You have raised $10 million from investors to open a bank

. You get to decide how aggressive you want to be in attracting deposits

. 1

. You must choose whether you want to be conservative or aggressive – you can take in $90 million or $240 million in deposits

. Enter this amount on the balance sheet below (for deposits)

. 2

. You need to hold 5% of your deposits in reserve

. Enter this amount on the balance sheet below (for reserves)

. 3

.Now you can loan the rest

. Enter this amount on the balance sheet below (for loans)

. 4

. Risk is about the random probability of possible outcomes

. So now you need to roll the dice

. If you get a six, congratulations, you have no losses

. Otherwise, the number on your die is the percentage of loans that go bad

. Enter this number in the space below

. 5

. Calculate the dollar amount of loan losses

. Enter these losses in the space below and adjust the balance sheet to reflect the loan defaults

. 6

. You earn interest of 4% on producing (non-defaulted) loans

. Enter this number in its space

. 7

. Your operating cost is 1

.5% of deposits

. Enter this number in the space below

. 8

. Profit is revenue minus expenses

. You have already calculated your revenue

. You have two costs to consider, operating cost and defaulted loans that you need to write off

. Enter your profit in the space below

. 9

. Finally, on the class discussion board, post (1) whether you are aggressive or conservative, (2) your percentage of loan losses, and (3) your profit

. 10

. Look at all of the posts

. What do you learn about the decision to be aggressive versus conservative

.
____________________’s Bank Assets

Assets Liabilities

Reserves ? Deposits ?

Loans ? Capital $10

Loan loss percentage: _____?___ Loan loss in dollars: ____?_____ Loan revenue: ____?______ Operating cost: ____?_____ Profit:_____?____

CommentYou have raised $10 million from investors to open a bank

. You get to decide how aggressive you want to be in attracting deposits

. 1

. You must choose whether you want to be conservative or aggressive – you can take in $90 million or $240 million in deposits

. Enter this amount on the balance sheet below (for deposits)

. 2

. You need to hold 5% of your deposits in reserve

. Enter this amount on the balance sheet below (for reserves)

. 3

. Now you can loan the rest

. Enter this amount on the balance sheet below (for loans)

. 4

. Risk is about the random probability of possible outcomes

. So now you need to roll the dice

. If you get a six, congratulations, you have no losses

. Otherwise, the number on your die is the percentage of loans that go bad

.Enter this number in the space below

. 5

. Calculate the dollar amount of loan losses

. Enter these losses in the space below and adjust the balance sheet to reflect the loan defaults

. 6

. You earn interest of 4% on producing (non-defaulted) loans

. Enter this number in its space

. 7

. Your operating cost is 1

.5% of deposits

. Enter this number in the space below

. 8

. Profit is revenue minus expenses

. You have already calculated your revenue

. You have two costs to consider, operating cost and defaulted loans that you need to write off

. Enter your profit in the space below

. 9

. Finally, on the class discussion board, post (1) whether you are aggressive or conservative, (2) your percentage of loan losses, and (3) your profit

. 10

. Look at all of the posts

. What do you learn about the decision to be aggressive versus conservative

.
____________________’s Bank Assets

Assets Liabilities

Reserves ? Deposits ?

Loans ? Capital $10

Loan loss percentage: _____?___ Loan loss in dollars: ____?_____ Loan revenue: ____?______ Operating cost: ____?_____ Profit:_____?____

Comment